Appraisal Economics Inc. has appraised a minority, noncontrolling interest in a startup entity. The alternative investment company specializes in litigation financing. The company provides cash advances to plaintiffs involved in ongoing or future litigation in return for a share of the proceeds if and when the plaintiff is successful. We valued the newly formed venture’s business enterprise using the discounted cash flow method of the income approach. Although earlystage companies are higher risk, this entity will operate partially in conjunction with a related, and established firm. Accordingly, we estimated the cost of equity by considering a cost of equity indicated by the traditional CAPM and also venture capital rates of return surveyed from a wide range of sources in Appraisal Economics’ library. We considered the lack of control and lack of marketability inherent in the subject interest.
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